The European Central Bank raised its three main interest rates by a quarter of a percentage point on 10 September, warning that the Middle East conflict was keeping inflation above its 2% target.
The deposit rate, which the ECB pays banks on overnight deposits, will rise from 2.25% to 2.50% on 16 September. It helps steer borrowing costs across the eurozone.
The decision also lifts the main refinancing rate to 2.65% and the marginal lending rate to 2.90%. These are rates charged when banks borrow from the central bank through different facilities.
ECB staff now forecast average inflation of 3.0% this year, 2.5% in 2027 and 2.1% in 2028. The 2026 forecast is unchanged from June, while the projections for the following two years have risen.
Energy drives the latest increase
At the press conference in Berlin, ECB President Christine Lagarde said annual inflation had reached 3.3% in August, up from 2.9% in July. Energy inflation accelerated to 14.3% from 10.3%.
Underlying pressures were more mixed. Inflation excluding energy and food, often called core inflation, eased to 2.4% from 2.5%, with a slowdown in services prices outweighing faster goods inflation.
Wages were not yet showing a material response to the energy shock, the ECB said. Annual growth in compensation per employee slowed to 3.3% in the second quarter from 3.5% in the first.
The bank nevertheless expects higher energy costs to work their way into other prices over time. Its concern extends beyond the immediate cost of fuel to how businesses set prices and employees negotiate pay.
Growth forecasts also improve
ECB staff raised their growth forecasts for 2026 and 2027, citing greater economic resilience. They now expect output to expand by 0.9% this year, 1.4% next year and 1.5% in 2028.
The assessment follows recent figures showing that eurozone growth picked up while employment barely increased. Lagarde pointed to resilient consumption and public spending, including government investment in defence and infrastructure.
Higher policy rates can make new loans and refinancing more expensive for households and businesses, although the timing depends on lenders and individual contracts. Existing fixed-rate loans do not automatically reprice when the ECB acts.
Further increases are not guaranteed. “We are not pre-committing to a particular rate path,” Lagarde said. The bank will assess incoming figures and the inflation outlook at each meeting.
